The Joint Venture Beijing Foton Cummins Engine Company Ltd.

As part of our ongoing research into American joint ventures in China, Datenna decided to highlight and research relevant cases. This case considers the joint venture set up by China’s Beiqi Foton Motor Co., Ltd. and Cummins Inc., from the United States.

  • The joint venture is established between two major actors, from the United States and China, with a 50/50 division of shares.
  • Cummins Inc., can be regarded as a main investor in China, with multiple jointly established joint ventures.
  • Its Chinese counterpart, Beiqi Foton Motor, has potential involvement with the Chinese state and defence industry.
  • The joint venture, Beijing Foton Cummins is renowned for its rapid developments and advances in digitalization and improving processes, also in terms of environment.

The Joint Venture

Beijing Foton Cummins Engine Company Ltd., is a large scale commercial vehicle company and it is jointly established by China’s Beiqi Foton Motor Co., Ltd. and Cummins Inc., from the United States with a 50/50 division of shares. The company has a registered capital of 1.08 billion yuan and its production facilities cover an area of more than 170,000 square meters in Beijing, which makes it one of the largest production plants in China. The company is engaged in advanced technologies: devising and production of diesel engines (2.8l and 3.8l) and of their components that comply with Euro IV emission standards.

The joint venture’s plant was featured in the World Economic Forum’s Global Lighthouse Network, in which leaders are appointed that take into account aspects of the so called 4th Industrial Revolution. Thanks to its smart automation and high tech tools, Beijing Foton Cummins Engine Company Ltd. is rapidly advancing in terms of technology, speed and processes.

 

US counterpart

 

Cummins (China) Investment Co., Ltd., the Chinese investment vehicle under Cummins Inc., owns 40% of the shares of Beijing Foton Cummins Engine Company Ltd. Furthermore, an additional 10% belongs to Cummins Inc. itself making it an equal 50/50 division between the United States and China.

Cummins Inc. is a global leader in the field of power technology. It devises and manufactures power generation products, engines, fuel systems and other similar products on a multinational scale. The company has offices in more than 190 countries worldwide, distributing their know-how and products to various clients by both independent distributor locations, but also company-owned divisions. Cummins Inc. belongs to one of the earliest corporations that started to do business in China back in 1975. It established Beijing Foton Cummins Engine Company Ltd. in 2006. It has been expanding ever since, as it founded multiple joint ventures together with Chinese manufacturers. Among them, for example, Dongfeng Automobile company and a JV with LiuGong (Guangxi LiuGong Machinery Co., Ltd.,).

Recently, Cummins Inc and Sinopec Group China jointly established Cummins Enze, which will contribute to the development of green hydrogen power, especially in China. In fact, Cummins took a frontline role in China’s green transformation.

For these reasons, China has emerged as one of Cummins’ most rapidly growing geographical markets as it has invested massively in enterprises and business partners over time. With more than 50 facilities and manufacturing sites in China, it is undisputedly the leading foreign investor in China’s diesel engine sector.

China’s Largest Commercial Vehicle Company

he Chinese counterpart is Beiqi Foton Motor Co., Ltd, owning the other 50% of the shares of the joint venture. The business scope of Foton covers the developing and manufacturing of commercial vehicles, ranging from sport utility vehicles, buses, vans and trucks to construction machinery vehicles. Beiqi Foton can be regarded, then, as the largest commercial vehicle company in China, but it also active at an international level.

The major shareholder of Beiqi Foton Motor Co, Ltd. (owning 27.46% of its shares) is Beijing Automotive Group Co Ltd (BAIC), an enterprise directly under the State-owned Assets Supervision and Administration Commission (SASAC). BAIC is the sixth largest car manufacturer in China. Its main subsidiaries include passenger car manufacturer BAIC Motor (with a 44.98% share); military vehicle manufacturer BAW; and of course, Foton Motor. Notably, it is found that most of BAIC’s turnover is generated by agricultural, commercial and military vehicles. Moreover, Datenna’s research concluded that there is a risk that Beiqi Foton Motor is also potentially linked to China’s defence industry.
Another noteworthy shareholder of Beiqi Foton is Weichai Power Co., Ltd., an enormous diesel engine producer, with shares worth 1.22%. Weichai is amongst the top 500 companies in terms of revenue in China being a “multi-field and multi-industry international group”.

Strategic Move

In the Made in China 2025 policy, which states that China will be transformed into a world manufacturing power, many industries are labelled by the Chinese government as key industries or pillar industries. Equipment, manufacturing, electronics, as well as auto mobiles and engines are considered pillar industries, meaning that these industries have become essential for China’s development to reduce dependence on other countries and technologies. By emphasizing development within these specific industries, China is also promoting their manufacturers globally.

China strives to maintain its position as a strategic key player in the commercial vehicle and engine industries. As a result, most companies within these industries remain directly or indirectly controlled by state-owned enterprises, as is the case with Beiqi Foton Motor, along with continuing to invest heavily in new infrastructure to meet new digital and environmental standards. Owing to this strategy, Datenna’s research concludes that the existing joint venture, Beijing Foton Cummins Engine Company, is doing significantly well. The company is rapidly developing into a major key player with regards to engines, as well as green power. Their positive development enables the company to expand massively all throughout China. This could be due to the fruitful cooperation between the two large entities that each hold 50% of the shares.

It is worth noting that the United States contributes indirectly to one of the pillar sectors of China’s MiC20205 strategy, namely the automotive and engine industry, by investing in China and cooperating with Foton Motor in this joint venture. This case is a clear example of how such cooperation of a foreign entity and a Chinese entity can build a large well-operating business, serving especially the needs of China. However, this sector, in turn, is also tied to China’s Military Civil Fusion strategy, meaning that the technologies and components developed (the engines) can have both civil and military applications. For this joint venture the risk is examined to be relatively low as the Chinese entities have little potential applications to China’s defence industry. Besides, the Chinese state’s indirect involvement in this joint venture through multiple layers of ownership, also carries a relatively low risk of a strategic government interest in the technologies produced by the joint venture. This case still concludes that one needs to be thoroughly informed as to who one’s partner and what business activities these are involved in.